Commentary

Is Google Unstoppable?

Google is Goliath, and in many people’s eyes, Facebook (especially after the drubbing it took following its lackluster IPO), David, despite that fact that Facebook
passed Yahoo in U.S. display ad revenue in 2011 to become the top ad-selling company, according to eMarketer. A February 2012 report from eMarketer found that Google had also passed Yahoo to settle in
at the No. 2 spot at $1.71 billion in revenue to Facebook’s $1.73 billion. And by 2013, the projections indicate Google will begin to leave Facebook and the rest in the dust, with Google’s
revenue from u.s. display predicted to reach $4.76 billion.

Google has, of course, long dominated search, and the growing display part of its business accounts for just a quarter of its
revenue. Facebook’s dramatic revenue growth is expected to drop off just as dramatically, sinking to 27.6 percent in 2013, while Google’s display revenue is expected to continue to surge,
with its 2013 revenue growth rate predicted at 45.3 percent. eMarketer reports: “Google is expected to surpass Facebook in 2013, when the company’s U.S. display revenues grow 45.3 percent
to $3.68 billion, eMarketer estimates. us display ad revenues at Facebook will grow 27.6 percent to $3.29 billion that year.” At this point, the revenue expectations can be plainly seen in the
perception of the companies’ display ad offerings. The Google Display Network is The Predator, stealthily cloaking itself, observing its prey and then targeting it with deadly accuracy. And, as
one character famously puts it in Predator 2: “There’s no stopping what can’t be stopped — no killing what can’t be killed.”

By comparison, with its soft
ad approach of “Let’s be friends” and “I ‘like’ you, you ‘like’ me,” Facebook’s display ads are more Barney the purple dinosaur. And there
are signs that the approach is becoming as grating to brands as a toddler screeching Barney’s theme song incessantly is to most people over the age of 6.

“One of the problems
with Internet advertising is that users have tuned out banner ads. It’s a huge problem,” says Larry Kim, founder and chief technology officer of WordStream, a digital marketing company
focused on search marketing, which conducted a much passed-around study comparing Google Display Network to Facebook Ads. “In order to combat that ad fatigue, advertisers are looking to
advertise on the venues that have the most support for the most rich and engaging ad formats.” And when it comes to providing rich and engaging ad formats the numbers certainly do not favor
Facebook.

“Facebook, while it has a significant audience, does [not] have very engaging ways for advertisers to engage with that huge audience, nor does it have very sophisticated
ways of targeting the exact people they want to engage with in that audience. Nor does it provide any way of really reporting on the effectiveness of those advertising campaigns,” says Kim.

It’s a challenge to get consumers to click on ads, and Facebook is lagging in a head-to-head comparison. “Our study showed that Google is way ahead here,” reports Kim. The
independent analysis of 11,000 Facebook campaigns (Facebook does not publish a ctr) showed an average click-through rate of 0.051 percent.

Google supports industry-standard banner formats
with a variety of rich media like Flash and video ad formats, offering what Kim calls “engaging experiences, not just dumb static images.” Facebook has two static ad format products. (The
recently introduced sponsored-story format is still unproven and has already been the subject of a class-action lawsuit by users who objected to being used to “endorse” a product.) Google
has a tremendous amount of support for mobile, whereas Facebook has, by its own admission, little or none (in its S1 filing to the sec in anticipation of the ipo, Facebook reported it did not
“generate any meaningful revenue” from mobile — a glaring deficiency for a service that is accessed via mobile device by over half its users.) This spring Facebook did roll out the
ability for brands to purchase “sponsored stories” that display in mobile newsfeeds of friends of fans — so that expansion of the sponsored story program, at least, is something.

“If an ad platform allowed an advertiser to deliver a meaningful ad experience to a targeted audience, you would expect users to click on that ad, right? But conversely, if you did not
provide advertisers rich and compelling advertising options, if you did not provide them with sophisticated targeting methods to connect with the right audiences at the right time, you would expect
your ads to be ignored,” reasons Kim. “And I think that’s what’s happening on Facebook, where we can see the click-through rate of .005 percent. That’s half of the
click-through rate of the average banner ad on any Web site in America, and it’s a tenth of the click-through rate of the average ad on Google Display Network [which is reported at 0.4
percent].” And, for good measure, let’s also consider that it’s a hundredth of the CTR on a Google Search ad.

If you need further proof: See gm’s hissy fit over
Facebook Ads. This is more complicated than gm just not getting the rich media ads it would get on, say, Yahoo or YouTube, though. Could it have been just that gm is not used to being told no? Well,
that would explain the timing. Someone at gm really wanted to screw Facebook over, pulling their $10 million in ad budget the very week of Facebook’s ipo, but the fact remains that gm must have
seen its Facebook ads were not performing even at half if industry standards.

“These ads are being ignored, and that is indicative of challenges with the ad formats and targeting
options they offer their advertisers,” Kim says.

Facebook is a closed system.

Facebook advertisers using the Facebook ads are doing it to drive “likes” to
their fan pages — essentially using paid media to drive something akin to newsletter sign-ups. And the roi of having a big fan page following is yet to be determined. “We don’t know
what the value [is] of having 1,000 fans or 2,000 fans. If you spend $2,000 to get that, what is the value of that?” asks Kim. And then, once a fan base is established, there is the time, effort
and money to maintain it and continually reach out to fans.

“Buying ads on Facebook was always a very easy way to check the box on ‘doing’ social media, even if it was
just buying other types of advertising,” says Michael Greene, a senior analyst at Forrester. “That’s allowed Facebook and other marketers to kind of gloss over the fact that you are
essentially competing in a very cluttered environment —we’re still very uncertain if it’s even a very good environment for consumers to be receptive to advertising.”

There are serious doubts about whether Facebook ads, as they are currently constituted, will ever be able to perform up to satisfactory levels. And many assume that much of the money that has been
dumped in so far has been exploratory or experimental dollars. Further, says Greene, “you have none of the deep analytics in tracking that you’d get with a more conventional type of media
buy. Facebook almost seems like an ecosystem in and of itself … It’s very hard for marketers to prove that this is an effective use of their marketing dollars. As opposed to buying more
traditional display advertising where they have a lot more flexibility, not only from a creative standpoint, but they have much deeper tracking and analytics, and they can actually drive traffic to
their own Web sites, which offers them higher prospects for ultimate conversion.”

The old concern, once common in interactive circles, that Facebook might be the answer to a trivia
question in 10 years, all of a sudden seemed very real again after an ipo that was widely perceived to have been bungled, intense Wall Street scrutiny of the company, and in the face of Mark
Zuckerberg’s assertions that Facebook was on a “social mission” and never designed to make money. Statements like “Simply put: We don’t build services to make money; we
make money to build better services,” while they may sound good to some, don’t fill investors or potential advertisers with confidence.

“He’s saying [advertising]
is like a side project just to pay the bills,” says WordStream’s Kim. “Until that mentality changes, I don’t see how they’ll ever catch up.” While Forrester’s
Greene brings a healthy skepticism to the topic of Zuckerberg’s altruistic “we-just-want-to-make-enough-money-to-do-cool-things” pose: “What’s enough money and
what’s doing cool things?” Greene asks. “It’s a posture that sounds really cool in pr pitches, but at the same time gives them enough flexibility to pursue whatever they deem
to be ‘cool’ or whatever they deem to be ‘enough money.’ These are things that can easily be redefined over time.”

By virtue of its remarkable scale, Facebook
will continue to be a top player in the display ad space. But, asks Greene, “can it really become integrated into the larger media-buying world? Can it stop being a separate experimental budget
and really hold its own as a line item in the broader media plan?” And to do so they’re going to have to deliver advertising experiences that are well beyond what they’re offering
today, say Greene and other analysts.

To stave off Google, “Facebook would have to embrace the idea that advertising isn’t something that will potentially ruin Facebook,”
says Kim, “but that it can be something that could potentially — if it were relevant and targeted and compelling — be additive to the user experience on Facebook.”

What would it take for Zuckerburg, the boy ideologue, to become pragmatic? What if Barney puts on the Predator’s armor? What happens to the market if Facebook does become open — does
become part of the larger media-buying ecosystem? “If you can start buying it through conventional advertising methods and measuring it holistically with the rest of your media buying, then a
substantial amount of inventory floods into the market all at once,” says Greene. “This also potentially opens up the use of Facebook’s vast amounts of consumer data to be used on a
much broader scale outside of just the Facebook walled garden.”

Reps at Facebook had no comment on the company’s plans for future ad products.

Yahoo, despite seeming
like an afterthought in much of the digital world, has a strong reputation among ad buyers and figures to remain somewhat competitive in the space. “Yahoo is pretty good at the large account
management. They treat their big accounts well,” says Kim. “Yahoo has carved out a niche in providing display advertising to the big brands.” Yahoo’s interim CEO, Ross
Levinsohn, is a media guy, and we can expect him to steer the company toward emphasizing proprietary holdings and continuing to build the company’s relationship with advertisers. And with the
most recent name bandied about to take over the ceo post being former nbc honcho Jeff Zucker, you can bet that the company will continue to further morph into the online equivalent of a traditional
media company.

Of all the portals though, perhaps Microsoft is in the best position to become a larger factor. Of all the major players, Microsoft has been the most aggressive in terms of
pursuing opportunities in the exchange channel. “Microsoft has the right partnership strategy and the right resources internally to take advantage of a space to be able to capture dollars
there,” says Greene.

AOL may shape up to be little more than a hitchhiker in the ad space. Its quarterly display ad may finally be pulling out of the nosedive it was in for the past
few years, but even in the three-way deal between it, Microsoft and Yahoo to sell each others’ remnant inventory, aol seems like something of an afterthought.

Yahoo and Microsoft will
take their pieces, and aol and the exchanges will lick up the scraps, but Google and Facebook will have their whole faces in the pie.

It’s no foregone conclusion that Google becomes
the behemoth of display, but it certainly looks likely. It would take a dramatic move by Facebook, whose ad revenue may actually be atrophying, to knock Google from its trajectory — and the
social network’s track record of having introduced three ad formats in seven years certainly doesn’t suggest a propensity for a shift in its game plan.

Facebook search anyone? That's a way FB could create a massive ad business. Create a viable and useful search capability -- allowing FB's audience to search without leaving FB -- and then allowing advertisers to targeted ads on the expressed intent. It's why Google is Goliath and it's a model that works for both consumers and advertisers.

OK, perhaps I missed something here, but I see ample discussion about Google having an advantage through tracking and analytics options. We have no such issues with Facebook, providing a tracking code in every destination URL so that we get complete analytics reporting as to how all our Facebook ad content performs.

If we were not able to use tracking codes to obtain concrete analytics results, we would not even place Facebook ads...and those ads drive very cost efficient clicks through us and fit nicely as add-ons to a number of client campaigns, almost all of which have solid click thru rates and low CPC rates

It seems to me that many are happy with a CRT rate of .05 or less either with Google or Facebook. I just check my 8 year Google Adsense average on Sweepstakestoday.com and is 0.32 on over 309 million page views. This leads me to believe Facebook has another problem. This is not properly managing the ads and taking on a lot of junk ads. One thing I learned a long time ago is not to run junk ads because they delute the quality Fortune company ads. The point... Facebook will weaken it's brand unless they get a hold of all their advertising problems.